CalPERS’ “huge news”: No more placement agents, plus $125 million in savings

CalPERS and its biggest investment partner, New York’s Apollo Global Management, are announcing this afternoon a “new strategic relationship” which will eliminate the use of placement agents and lead to a “substantial reductions” in fees — $125 million worth — payable to Apollo, which currently handles $5 billion in CalPERS funds.

According to a CalPERS press release, the two entities ” believe that the agreement will set a new standard among pension funds and their investment advisers.”

What that means, I’m told, is that CalPERS will be using the agreement as a template to renegotiate arrangements with its other investment partners — including the elimination of placement agents.

“Bringing $125 million into the CalPERS pension fund is a game changer. It brings a large sum of money to the fund, and it sends a signal on how other investment managers can align their interests with those of our members,” said CalPERS president, Rob Feckner.

“This is huge news,” said another CalPERS official. “It sets a precedent with our largest single investment partner. It’s a great place to start.”

A letter of agreement with Apollo explicitly states “Apollo has agreed not to use a placement agent in connection with securing any future capital commitment from CalPERS.”

The Villalobos affair prompted CalPERS to hire the Washington law firm of Steptoe & Johnson LLP to conduct “a special review of the fees paid by its external managers to placement agents,” and legislation in California calling for the elimination of contingency fees paid to placement agents by public pension funds.

The agreement with Apollo was drawn up by Philip Khinda, the lead attorney conducting the review for CalPERS.

“We recognize that the priorities and strategic interests of CalPERS have evolved under its current leadership, which has sought to lower costs, increase transparency and eliminate the need to use placement agents,” said Apollo CEO Leon Black in the press release.

“We believe that in proactively addressing these issues with our partner and affirming its priorities and objectives, we have established a foundation to enhance and grow our long-term partnership.”

Hopefully, with the markets bouncing back, the partnership will produce better results for CalPERS going forward. As of June 30, 2009, CalPERS had lost $475 million from its 9 percent equity stake in Apollo.